Auto Manifesto

September 9, 2009

CAFE: Who Are We Kidding? (Part 1)

It's taken a while but here's my summary of the CAFE standards for 2011.

Any rational person with a modicum of understanding of this industry, after reading several sections of this rulemaking will come to the conclusion that the U.S. government is wholly incapable of effectively regulating fuel efficiency.

The rule is complicated, unnecessary and ineffective. Instead of the government playing automotive engineer, it should establish a fuel price floor which would enable the market to address these issues faster, better and cheaper.

The end goals are to reduce oil consumption, for both national security and environmental reasons, and to improve highway safety. It's not the government's place to dictate technically specific solutions.

As I've said many times before, people (the market) will respond to higher fuel prices. Just look at what happened in 2008 when fuel prices rose dramatically. People drove less (and slower), and roads were safer for it as well.

I'm not saying tax fuel so the price is at peak 2008 levels, but implement a long-term plan to steadily increase the minimum fuel price. It's an understandably difficult political proposition. Don't call it a tax. Position it as an innovation incentive and then use the proceeds for that purpose.

People will choose more appropriate vehicles for their needs. More efficient vehicles are driven more, public transport is needed. Consumers are then directly involved with reducing fuel use. The market knows best.

The CAFE standard is based upon a number of significantly false and unknown assumptions. For instance:

1. All vehicles are driven the same amount. This is implied because the regulation only looks at fuel economy (mpg) instead of fuel consumption (gallons).

2. Manufacturers can accurately predict market demand and what the sales mix of models will be.

3. Consumers will save money. Unlikely when you consider fuel economy hasn't really improved (though cars do have a lot more power now) but the manufacturers have had to spend BILLIONS (by NHTSA's own estimate) on CAFE compliance.

4. The regulation is enforceable. Technically this is correct, but it heavily depends on assumption #2.

5. Provides stability. No can do with a 5 year planning horizon (see Part 2).

6. Mergers and alliances will not affect CAFE levels. This may be the most complicated aspect of it all (and rife with loopholes).

Full NHTSA document: [Text, PDF]

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